China stocks drop as Shenzhen is locked down and Covid cases surge

Shares in China fell on signs that widespread lockdowns could once again become commonplace as the world’s second-largest economy deals with its biggest Covid outbreak since the start of the pandemic two years ago.

Hong Kong’s Hang Seng index fell 3.7 per cent and China’s CSI 300 index dropped 1.7 per cent after 17.5mn residents of Shenzhen were put under lockdown to contain a surge in cases of the Omicron variant of Covid-19.

The measures followed on the heels of similar measures in Changchun, a city of 9mn in north-east China, with cases also rising in Shanghai and a number of other big cities.

China reported more than 1,800 infections of Covid-19 on Sunday, the most daily cases in two years, as authorities struggled to contain the country’s biggest outbreak since coronavirus emerged in Wuhan in 2020.

“If the lockdown is extended, China’s economic growth will be significantly affected,” said Raymond Yeung, chief economist for Greater China at ANZ. Yeung added that “half of China’s GDP and population will be impacted this time” and a one-week lockdown of the affected region could shave about 0.1 percentage points off the country’s economic growth this year.

Investors were already responding to the threat of economic and travel disruptions on Monday, with the Hang Seng Tech index of large Chinese technology stocks down almost 7 per cent and the Bloomberg China Gaming Market index tracking Macau casinos falling almost 9 per cent.

Elsewhere in Asia, Japan’s Topix rose 0.7 per cent and Australia’s S&P/ASX 200 climbed 1 per cent following tentative signs of movement in talks between Ukraine and Russia following Moscow’s invasion. Mykhailo Polodnyak, an adviser to Ukrainian president Volodymyr Zelensky, said Russian negotiators were “no longer making ultimatums, but are listening carefully to our proposals”.

Oil benchmarks also dropped on hopes that Russia was more willing to engage in serious negotiations with Ukraine.

“If you compare the positions of both delegations at the talks at the start and now, then there has been substantial progress,” Leonid Slutsky, one of the Russian negotiators, said in an interview with RT Arabic.

Brent crude, the international benchmark, fell about 3 per cent to $109.46 a barrel and US marker West Texas Intermediate shed about as much to $106.17 following the signs of movement in talks.

“Oil prices continue to demonstrate volatility on the back of uncertain incremental supplies from outside of Russia, in addition to continuing geopolitical risk from the war,” said Kaushal Ramesh, senior analyst at Rystad Energy.

Futures tipped European shares to open higher, with the Euro Stoxx 50 set to rise 0.8 per cent. The S&P 500 was expected to increase 0.4 per cent.